September 14, 2017
Interest rates are currently hovering at near-record lows but it’s fair to assume rates will rise at some point in the future. In fact, some economists are tipping rates could start to climb within 12 months.
Already, funding costs are putting pressure on lenders, forcing many to consider lifting their home loan interest rates independent of any increases to the Reserve Bank’s official cash rate.
If rates were to rise across the board, a survey by Digital Finance Analytics found up to 20% of borrowers believe they will be adversely impacted and struggle to meet their debt obligations.
It’s a scary thought. But before hitting the panic button let’s look at what is likely to happen in reality.
Rates typically rise gradually
It’s quite natural for homeowners to be concerned about possible rate hikes, especially if it pushes their mortgage repayments beyond an affordable level. However, chances are this won’t happen. Rate rises tend to be gradual, and with interest rates already very low any upward moves shouldn’t be too painful on the hip pocket.
For instance, on a $500,000 home loan with a rate of 4.0% for instance, the monthly repayments would be $2,387. If rates rose to 4.25%, the monthly repayment would be $2,459. That’s an extra $72 a month or $18 each week. Sure, no one likes paying more on their home loan but this sort of increment shouldn’t set alarm bells ringing.
That said, Penrith home loan borrowers can use a few strategies to shield themselves from the full impact of higher interest rates.
A fixed rate – protection from rising rates
One option is to fix all or part of your home loan. This means your monthly repayments will remain the same for the fixed term you select no matter how market rates move. That makes your Penrith home loan a lot easier to budget for, and with today’s fixed rates sitting at low levels, now is certainly a good time to consider locking into a fixed rate.
Review your current loan
Another strategy is to refinance to a cheaper loan. In today’s competitive Penrith mortgage market, you may be able to save money by switching to a lender with a lower rate. This puts you ahead financially regardless of whether or not rates rise.
Uncertainty over future rate hikes makes it important to speak our team of Penrith home loan experts. We can review your current home loan and let you know the most appropriate strategy to become rate rise ready.
For tailored advice on preparing for future rate hikes, call me – Paul Holland, today on 02 4789 0808. Or drop in and see me at our office in Nepean Village shopping centre.